As a business owner in the B2B industry, you definitely want to grow your business and acquire new customers.
I’m certain that you’re already tracking various metrics to determine the success of your marketing efforts. But a great way to measure the efficacy of your marketing campaigns is by determining your CAC.
B2B Customer Acquisition Cost, or simply CAC, is an important B2B marketing KPI that shows you how much it costs to acquire a new customer.
It’s a key element to determine your business’ profitability.
There are two factors that determine the costs of acquiring new customers.
First, the costs of generating a lead, and second, the costs of converting that lead into a customer.
However, the costs and the number of customers are typically inversely related. This means you need to spend more to grow your customer base.
It’s a fact that acquiring new customers is one of the biggest challenges you can face as a B2B business owner.
The key is balancing how much you spend per new customer with your customer’s average lifetime value.
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How to Calculate Your B2B Customer Acquisition Cost
To understand your CAC, you have to know how to calculate it. The formula is pretty simple.
Everything you spend your money on when marketing to your customers should be included in the CAC costs.
The total sales and marketing expenses can include:
- Sales and advertising costs
- Creative costs
- Technical costs
- Production costs
- Salaries, commissions, and bonuses of your sales and marketing team
As a B2B business owner, you’re definitely running your marketing campaigns across several channels.
To broaden your reach, you must consistently monitor your CAC across each channel and determine how you can get the greatest number of customers at the least expensive cost.
For example, you are using two channels to acquire customers: social media and paid advertising.
From the data you’ve gathered, you found that each channel acquires 40 customers in a period of 2 weeks.
By simply looking at the data, you may conclude that both channels are equally effective since they’re both getting the same number of customers.
In order to assess which of the two channels is giving you the lowest acquisition cost, you must calculate the CAC.
Looking at the data in more detail clearly shows that paid advertising is a more costly way of acquiring new customers.
So, you may decide to focus your spending on social media channels for customer acquisition.
This is where your data comes into great use. You need to use the right tools in order to accurately measure and track your customer acquisition costs.
Since the customer journey in B2B is much longer and involves multiple decision-makers, tracking these can be a little bit more challenging.
But, if all of your data are efficiently gathered, analyzed, and tracked, you can harness CAC’s greatest potential, and understand why it’s a powerful metric that should consistently be a part of your KPIs.
Why CAC Matters for Your B2B Business
While it is true that acquiring new customers is more expensive than retaining the existing ones, it is important so your business can avoid stagnation.
Acquiring new customers will create a balance between the existing and absent ones.
Tracking your CAC allows you to set realistic goals for future campaigns, and it’s also a good way to assess your business’ health.
By taking the costs into account against your revenue, you can measure the success of your marketing campaigns effectively.
You can also use CAC to gain insight into what strategies are driving your business to grow.
When you have a deeper understanding of how much it costs to acquire new customers, you can analyze your marketing return on investment.
Ways to Reduce Your B2B Customer Acquisition Costs
You should constantly aim to reduce the costs of your CACs.
A low CAC not only helps to regain your revenue, but it shows the health of your sales and marketing programs.
Here are ways how you can lower the costs of your CACs.
Optimize the Quality of Your Leads
You should focus your attention on prospects that are most likely to convert, and identify which ones are irrelevant to your business.
The earlier you remove the customers who aren’t fit, the better your conversion rates will become since it will give you more time to focus on the qualified leads.
More time to follow up on qualified leads will result in increased conversion and lower CAC.
In B2B, you need to target a highly specific set of customers so you can reach them better. It’s easier to get more information so that you can redirect your marketing efforts immediately if it’s ineffective.
By having a focused segment, you can be sure to save on marketing and sales expenses.
Optimize Your Website
Paying attention to your website and your landing page experience will definitely help you reduce your CACs.
Running A/B tests on your landing pages, and having significant data allows you to analyze metrics such as bounce rates and exit rates.
Capturing the attention of your leads and getting them to convert has a great impact on your CACs.
Understand Your LTV:CAC Ratio
The ratio of LTV:CAC is used for determining your ROI.
It makes sense to have a clear understanding of this ratio so you can significantly reduce your customer acquisition costs.
Lifetime value also referred to as LTV, is the total amount of revenue that a customer is expected to generate over the entire course of their business with your company.
It’s also a great way to know whether or not your marketing campaigns are effective.
You must understand the relationship between the two so you can assess the value of a new customer over its lifetime, relative to the cost of acquiring one.
The LTV:CAC ratio shows the revenue a customer generates when engaging with your business.
If your customer’s lifetime value is $4000, and it costs $1000 to acquire that customer, the ratio would be 4:1.
Ideally, your LTV should be higher than your CAC, somewhere between 4:1 and 3:1.
If your LTV is lower than your CAC, you are not acquiring customers in a profitable way. In this case, you need to re-evaluate your marketing spend and strategies.
Improve Customer Retention
As mentioned above, LTV is a key factor to determine the effectiveness of your marketing strategies.
If you can keep a customer engaged for a long time, the higher the revenue they will generate for your business.
Getting new customers cost higher than retaining the existing ones. By improving your customer retention strategies, you can keep your CACs low.
Reform Your Digital Marketing Strategy
In reality, costs of marketing such as paid channels continually get higher. This is why after some time, LTV:CAC can get out of control.
You can tackle this by reforming your digital marketing strategies and implementing a customer-centric approach.
You can shift from a product-driven advertisement into narrative-driven content that highlights your buyers’ needs.
A good digital marketing strategy can help you significantly lower your CACs.
With the right skills and creativity, you can utilize organic marketing channels that will lead to a more sustainable way of acquiring new customers.
Acquiring new customers may be more costly, but it is crucial for your business to grow and succeed.
Having a deeper understanding of your CAC can help you find ways how you can efficiently generate new customers at a lower cost.
The techniques mentioned above will greatly help you understand how you, as a B2B business owner, can keep your CAC low and yield high revenue.